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What's your priority - customer acquisition or customer retention?
What's your priority - customer acquisition or customer retention?
January 06, 2011
Ok, so that’s a bit of a leading question, but whilst we all know what our answers should be, it’s tempting to focus all of our time and money on acquiring new customers rather than looking after the ones we have. Acquiring new customers satisfies our need to get onto the next thing, it seems exciting and new. But does it make good business sense?
The short answer is no. It can cost you up to six or seven times more to gain business from a new customer than it does from an existing one according to Flowtown. The same blog highlights that you can increase your profits by up to 95 per cent just by improving your customer retention rates by five per cent. That sounds pretty optimistic to me, but even an increase of 20-30 per cent in profits wouldn’t be a bad thing for most businesses.
Your loyal customers will spend more money with you, they cost you less to gain repeat business from, and they’re probably more loyal and less sensitive to price than new customers. So, if retaining the customers you have makes good business sense, then why don’t many businesses put their existing customers at the heart of their marketing strategy?
In the small business world, it’s easy to think that it might be a lack of strategy. Many business owners don’t have a strategy or a marketing plan and will often lurch from advertising to leaflet drops to manic social networking without taking a considered or planned approach. Perhaps that’s a very unfair way of looking at things, but I do believe that without a strategy to retain customers you leave yourself open to losing customers unnecessarily.
That said, big businesses aren’t immune to failing to retain their customers effectively. Talk to anyone renewing their insurance and you’ll wonder whether the insurance companies have even heard of the concept of customer retention. I know that it’s always cheaper for my family to apply to our existing insurance company as a new customer, than it is for us to just renew. How unbelievably inefficient for us all!
Large and small businesses could do well to think more carefully about customer retention. In this age of comprehensive spending reviews and increased efficiency, frankly we could all do with whatever help we can get in leveraging more business from our valuable customer bases. What strategies do you use in your business?
Fiona Humberstone is an expert contributor to Marketing Donut and managing director of Flourish.
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Comments
Some great points Wayne - who hasn't been in startup mode keen to acquire as many clients as possible? But I do think it's worth bearing in mind that whatever size your business we could all do with planning on how we're going to retain our clients - even if it's not our primary need right now.
How refreshing though that you put servicing your loyal band of customers at the heart of what you do!
Some great points Charlotte. Thank you for your comments.
If you're a small business just starting out, many will have no clients, or perhaps only a small selection, so their efforts absolutely must fall into the pursuit of new customers.
For the established like me, new clients can be a diversion from the main focus, which is that of servicing the loyal band of clients I've had, in some cases, for over ten years.
For the very large businesses — and here I'm thinking of telecommunications and utilities giants — for them, customer loyalty is almost an anathema; they simply cannot afford to dedicate time and resources to consumers or small businesses.
I never set out with the intention of being a big business, or of being a business that deals with big companies, because I know first hand where that can lead. And in the end, you're not living a lifestyle, but chasing money, and that's not for me.
I think that some businesses (ie. those that sell a one-off experience or once in a lifetime product buy) don't need to be as worried about repeat business as perhaps a supermarket chain does. But I think for everyone, customer service and solving issues that arise is key to developing to brand image. If a customer has a bad experience, they then pass on that knowledge to other people, and as we know third-party recommendations are incredibly powerful. So if your friend tells you about a bad experience your more likely to go elsewhere.
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